Definition
Written-Down Value (WDV)
Written-Down Value (WDV) is a term used in accounting to represent the value of an asset after depreciation has been subtracted from its initial cost. This value is important for financial reporting, tax calculations, and asset management. The WDV is also known as the net book value or carrying value of the asset.
Examples
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Machinery Depreciation:
- Initial Cost: $100,000
- Annual Depreciation (Straight-line method for 10 years): $10,000
- After 3 years, WDV: $100,000 - ($10,000 * 3) = $70,000
-
Office Building Depreciation:
- Initial Cost: $1,000,000
- Annual Depreciation (Straight-line method for 50 years): $20,000
- After 10 years, WDV: $1,000,000 - ($20,000 * 10) = $800,000
-
Vehicle Depreciation:
- Initial Cost: $40,000
- Annual Depreciation (Straight-line method for 5 years): $8,000
- After 2 years, WDV: $40,000 - ($8,000 * 2) = $24,000
Frequently Asked Questions (FAQs)
1. What is the significance of WDV in financial accounting?
Answer: WDV is significant in financial accounting because it provides an accurate representation of the current value of an asset after accounting for depreciation or amortization. This value helps businesses in asset management, financial planning, and reporting.
2. How is WDV calculated?
Answer: WDV is calculated by subtracting the accumulated depreciation or amortization from the initial cost of the asset. The formula is: WDV = Initial Cost - Accumulated Depreciation/Amortization.
3. Can WDV be used for tax purposes?
Answer: Yes, WDV is often used for tax purposes to determine the allowable depreciation deductions for an asset over its useful life, which impacts the taxable income of a business.
4. Does WDV affect asset disposal decisions?
Answer: Yes, WDV plays a critical role in asset disposal decisions as it indicates the remaining value of an asset. It helps in determining potential gains or losses upon selling or scrapping the asset.
5. Are there different methods to calculate WDV?
Answer: Yes, WDV can be calculated using different depreciation methods, such as the straight-line method, declining balance method, or units of production method. The choice of method depends on the asset type and business policies.
6. What happens to the WDV when an asset reaches the end of its useful life?
Answer: When an asset reaches the end of its useful life, its WDV is typically zero or a residual value if any. This indicates that the asset has been fully depreciated.
Related Terms
Depreciation
Depreciation is an accounting method that allocates the cost of a tangible asset over its useful life. It reflects the wear and tear, deterioration, or obsolescence of an asset.
Amortization
Amortization refers to the process of gradually writing off the initial cost of an intangible asset over its useful life. It is similar to depreciation but applies to intangible assets like patents or trademarks.
Net Book Value (NBV)
Net Book Value (NBV) is the value of an asset after accounting for accumulated depreciation or amortization. NBV is synonymous with WDV.
References
- Investopedia - What is Depreciation?
- Corporate Finance Institute - Depreciation
- Accounting Coach - Depreciation
Suggested Books for Further Studies
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
- “Financial Accounting: Tools for Business Decision Making” by Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso
- “Accounting Principles” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso
Written-Down Value Fundamentals Quiz
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